Big interview: Michael Rea, Gallagher UK

The number 10 is very much on Gallagher UK CEO Micheal Rea’s mind at the moment.

His business has just extended its sponsorship deal with Premiership Rugby, meaning the partners will have worked together for a decade when the latest renewal ends in 2028.

He is also nearing double digits in terms of his time at Gallagher, something he has never managed with any former employer.

Scale should not be just for vanity, it is only important if you do something with it: bring the best possible solutions to clients and make sure you get the best insurer deals in the market.

“I came to the conclusion the other day that I have worked here longer than anywhere else. I did five years at PWC, about five at the Pru, three or four at Churchill and seven at Towergate when you include the three at CCV and four at [the parent company]. But on the 1 September I entered my tenth year [at Gallagher].”

Rea joined Gallagher in 2015 as COO of its International division and quickly became CEO of Gallagher’s UK & Ireland Retail division in 2016.

However, at the start of the year he stepped up to become UK CEO, a role that had effectively been redundant since January 2021 when the former incumbent Simon Matson became CEO of the insurance broking and underwriting operations in Europe, Middle East, Africa and Asia.

“It is a broader role that includes retail, the business I ran for about eight years, which is the largest part of our UK estate. But I’ve now also taken on Speciality and Pen [Underwriting], our MGA. With my retail hat on we traded with both actively, so I know them reasonably well. But it is one thing trading with businesses than sitting on top with responsibility for them.”

Validating opinions

Given he already knew the business, Rea concedes that he “took an active decision to step back from retail” at the start of 2024 to spend as much time as possible with the Speciality and Pen arms to validate what he thought he knew about the businesses from the outside.

“I am very lucky in that I have taken over two businesses that are in good shape,” he continues. “Speciality has enjoyed phenomenal organic growth over the last few years, with big tail winds that are starting to come off a bit now but it is in good shape. 

“It is a business with deep expertise so what I bring to the table is a sense not trying to be the brightest guy in the room – but to facilitate growth and working out how to help that through investment, bringing people in and broadening the proposition.”

Moving on to Pen, Rea says: “Again it is a business in good shape with solid capacity, and it is expanding not just organically but from an M&A perspective too. It has also grown outside the UK over the last couple of years and 30% of its revenue now resides outside [this country], so that is an interesting geographic expansion rather than just a product one.”

Speaking about recent growth Gallagher has reported 8% [Q4 23], 6% [Q1 24] and 7% [Q2 24] over the last nine months, helped by the aforementioned tail winds of a hard market across many lines.

Big Tail Winds

The big question is whether Rea sees these continuing to blow hard or start to fizzle out?

“I think we are in a really interesting phase: 2021 – 2023 was all about double digit organic growth fuelled by big tail winds, insurer appetite contracting and a number of players trying to repair the damage [of the past] and their pricing reflected that,” he responds.

“We also have an inflationary bubble which has impacted the cost of claims and if the cost of claims is going up, then insurers have to put their premiums up too. But that began to unwind at the end of 2023.

“So we are in a transition state because some colleagues will say the market has turned and is soft, and there are certain lines where that is the case such as D&O; but there are other parts of the market where it still needs – and is getting – rate [increases] such as the SME and mid-market – and insurers are trying to hold the line for as long as they can.

“Elsewhere, there are specialist sectors that typically get impacted slightly more quickly and acutely, which are potentially on the turn. Aerospace is one of those, cyber has gone and there are a couple of big claims out there which will determine whether the market softens or steadies in the marine and energy spaces.”

£1bn barrier

One of the consequences of Gallagher’s recent growth is that the broker this week became the first firm to break the £1bn barrier in Post’s sister title Insurance Age’s Top 100 UK Insurance Brokers which is put together by Insuramore.

Asked if achievements like this are important, Rea reflects: “That is interesting because everything in this organisation is spoken about in dollars as we are a US-owned business. So pushing through sterling milestones would not have occurred to us. If you are asking whether scale matters to us, it does to a point; but it is really growth that matters the most.

“We are really focused on growing the business year-on-year because that means a few things: it makes us investable, whether that is in people or tech platforms. So having growth and cash flow is important and that is what we tend to focus on.”

Rea continues: “Scale should not be just for vanity, it is only important if you do something with it: bring the best possible solutions to clients and make sure you get the best insurer deals in the market.

“You can also use scale to the benefit of clients through data and service; the bigger you are, the more data you have and increasingly having good data and then using it for insight is an important differentiator [as a broker].

“To be able to sit with a client and say: ‘We have got 2500 clients in your space that look a bit like you and they typically buy these limits and this sort of coverage’. Now they don’t have to [follow that advice], but the evidence would suggest if that is what your peer group is doing, it is a more powerful conversation than: ‘I think you should do this because you trust me’. Now, in a data free environment that experience matters, but if you can back up experience with evidence, that is even more powerful.”

Rea adds: “Meetings that used to be a ‘chat’ don’t really exist anymore; meetings come with data packs and ‘what does it mean?’ conversation off the back of it – and that is a theme that has evolved over the last 20 years.”

M&A

Gallagher has made some notable acquisitions during Rea’s time at the business, but it has certainly taken its foot of the gas when it comes to being among the larger deal makers in recent years. Indeed, to date in 2024 it has made no broker acquisitions.

And in 2023 it sealed just the two deals, specialist education broker FE Protect in March and vacation/holiday and leisure industry focused Lifesure Group in September, meaning it is now over a year since Gallagher got out the cheque book to buy an intermediary in the UK.

“Gallagher globally is still doing 50 deals annually, but in the UK it has slowed down in the last couple of years and there are a couple of [reasons behind that],” Rea explains.

“Firstly there are fewer bigger businesses coming to market so there is a supply side piece, and these things come in waves. We have been lucky enough to buy a number of sizeable consolidators like Stackhouse Poland and Bollington and on the back of that the PE guys have done quite nicely and so they have reloaded and gone again.

“That therefore gives us another 3-4 year window [for these PE-backed brokers to grow], and we are now seeing some of those coming onto the market with DRP sold to BMS; so there are windows when these businesses become available and the last couple of years those businesses have been in build mode.”

More trade buyers

Rea continues: “Another observation is that there are more trade buyers in the UK now than there were three years ago. So if you wanted go down the PE route that is absolutely fine, good luck to you. But we were there as a trade alternative and there are now more trade alternative routes.

“You’ve got Brown & Brown, Aon looking at M&A again, there are more options there. As you’d imagine we get to see every adviser led deal, and although M&A has slowed down, there are a lot of deals out there and we look at a lot, and pass on a lot of deals.

“From a pricing perspective we are disciplined and we only buy businesses where there is a clear business rationale in that it builds on our strength in a certain sector or is complementary. 

“Ultimately we are looking for businesses that fit. That could be a good cultural fit: do we like the management team? Do we think they’ll hang around? Which is what we want.”

Given the lack of deals, especially when compared to others in the market, does Rea believe that not having to spend much energy and resource integrating buys has contributed to its recent success? And has that stability worked in its favour?

“Not really because we can buy a business over here and integrate them over here, so in our world it is not an either/or strategy,” Rea answers. “Everything we buy we integrate and that is over a 12-15 month period depending the complexity of the business.

“So whether we buy five businesses in a year or take a bye, we have a team that is very good at that. It is fair to say ten years ago we inherited a bunch of businesses that weren’t integrated in Oval, Giles and Heath Lambert, so we spent three years building a platform to bring some coherence to that. Our commitment as a leadership team is that we are never going to leave a legacy for the next management team of things they need to integrate.”

Being authentic

Rea expands on this: “It involves a significant investment but it means we largely have one platform across the UK, so bolting on deals is relatively easy, and that is about technology, regulatory consolidation, brand and most importantly the litmus test - the people.

“So when I stand up on day one and say ‘congratulations, you have been bought by Gallagher, now let tell me you what is going to happen’ it is a) about being authentic b) honest and c) doing what you said you were going to do. If you do that, people keep coming back because they hear you are a good buyer of businesses and have a solid reputation.

“I don’t think everybody does that. You will occasionally find yourself in a competitive process where people say ‘we’ve been told we are going to be left alone for two years’, and it makes me smile and comment: ‘you actually believe that do you?’

“[For Gallagher] it is about being as honest as you can and if that means making a couple of the tough decisions I’d rather get that on the table before we buy it. 

“So if you are acquiring a business in a town where you have an office it is a case that not on day one, not in month one, but over the first couple of years we’d like to move you into a bigger office because a) it is more efficient and b) it is better for your people. And if that is something you’d not like to do, that is OK but let’s shake hands, say we’ve had a lovely hour and leave it at that.”

Whilst deal making might have slowed down, Gallagher continues to be in Rea’s words “a destination for talent”, which means the business has not found it difficult to recruit at a time others have bemoaned issues in filling vacancies.

“In 2022 and 2023 the transfer window was open, shall we say. It is always open in Specialty as it is a bit of a merry-go-round, but in the retail space there were a number of people desperate to build out capability so there was a bit of a frenzy, and that definitely eased in 2024,” he continues.

“We are always on the lookout for talent, people who can bring expertise or are a bit unhappy in another big organisations that is perhaps refocusing. Those are exactly the sort of people who we want who could forge a career in Gallagher; and it is that sense of career that we try to push out into the marketplace – not to people at my stage of life, but younger people, graduates coming in and people in their late 20s. If you come here we are going to spend money and time investing in you from technical and professional perspective.”

Influx of new blood

Rea notes that Gallagher takes on approximately 50 graduates every year, and that it gets just get shy of 1000 applicants for those roles. He also admits that this annual influx of new blood into the business is helping it reshape its demographic profile in a positive way, albeit slowly the higher you go up the management tree.

“As a sector from a gender perspective we have got an awful lot more to do, we are predominantly a 50:50 industry give or take, but when you look at the senior leadership in the broking space it is predominantly male and it is got an age and ethnic demographic that is not as broad as it might be,” he says.

“Now are we trying to change that? We are trying to impact the input and make sure when we recruit we recruit as broadly based as possible say for the graduate scheme. Now we don’t have quotas but we make pretty damn sure there is a fair representation of male and females alongside better ethnic representation.

“So we are trying pretty hard there, but that is the 20-30 year old bracket so this is a long term investment but it is the right thing to do. The other issue is when you are a stable business your leadership team does not change very much.

“If you look at the exec team here my move was the first move in eight years. So we are doing great and we are stable, but the flipside is it is difficult to change your leadership group because of that.”

Which bring us back to where we started and Rea’s tenth year at the firm and its sponsorship of the Gallagher Premiership, which he hails as being a notable success during his tenure, not least in brand recognition.

Brand recognition

“If you go back seven years ago nobody in the UK knew who Gallagher was, so I’d go to branches and they’d say ‘we have got great people, and when we get in front of a client we are pretty good at converting prospects, but we have to spend five minutes explaining what Gallagher is’. And when you have to explain who you work for you are always on the back foot,” he comments.

“Aon didn’t have to do that, Marsh didn’t have to do that, so everywhere we went that was the case. And it was reasonably opportunistic that the sponsorship deal came up at the time it did but we thought it would be perfect because with a retail hat on we have offices in Newcastle, Bristol, Exeter, so everywhere there is a team in the Premiership we have an office so it is not a London centric sponsorship which appeals.”

Rea adds: “We like rugby, it is about honesty, teamwork, hard work and respect for the ref, which when you read our values [is similar]. It has clearly had a few challenging seasons with the Covid years and Saracens being relegated because of the pay gap, but we have been loyal to them and they are a great partner and we get on well.”

He concludes that whilst it has been nice to be involved with an “elite sport”, it is the community outreach through Project Rugby that has probably been the most rewarding part of its association with Premiership. “Having 100,000 kids who have never seen a rugby ball before running around a pitch and trying the sport for the first time is the thing we are probably proudest off.”

Which leaves one question, will he still be around pushing on 13 years at Gallagher when the latest Premiership rugby renewal ends in 2028? Rea smiles and answers: “Yes, I think you’ll find I am.”